Dealership Value-Added Programs are BUNK!

That’s right – BUNK. As in crap. Before you start chasing after me with pitch forks, at least read the rest of this article.

What is a value-added program for a dealership? It is a business to consumer incentive plan that gives a quid quo pro “bonus” when someone purchases something from the dealership. For example: customers receive free oil changes for life when they buy a car from your store. This is one of the most common value-added programs.

My experience with these programs dates back to 1999 when I started selling Volkswagens. Our competitor gave free oil changes and state inspections for life. They were one of 3 dealers in town doing anything like this. At the time, I estimate roughly 40% of all customers mentioned their program and that was mainly due to them buying so much newspaper real estate to push it. As a salesperson, 40% of the customers saying something about it translated into 100% of my customers asking for it. It really is amazing how selective our memory can be isn’t it? I was all about our store offering the same or better. What we were given was a program that only tackled 5 oil changes and state inspections for life. It forced me to continue to be a better sales person by finding ways to sell around the other guys oil changes for life.

Since 1999, I saw more and more dealers bringing value-added programs into their mix. They ranged from free tires to free manicures every week. It got to a point where the focus of advertisements were no longer cars; advertisements were all about who could whore out the most free stuff in 30 seconds. This went on until the economy crashed in late 2008.

During that 9 year period I received a promotion that took me to the executive side of the dealership, giving me a 10,000 foot view of the place. It wasn’t the new view that changed my perspective on these programs, it was the economy. We were forced to dump a lot of expenses and one of those we killed was our value-added proposition. Only a few others killed theirs, but we were the only big group to kill ours. Our biggest competitors still have their programs going to this day.

In hindsight the value-added program was bad for business. Yes, it probably did sell a few more cars here and there – nothing drastic. Yes, it gave us some extra advertising ammunition (always a good thing).

BUT it maintained the laziness status quo that most dealerships are so plagued by. Let’s face it, America has become a society of excuse makers. Instead of sucking it up and taking responsibility we get extremely creative in finding things to blame our mistakes on. A value-added program is an excuse. “How did they beat us last month?” – “Boss, I’ve been telling you for months we’re getting killed because they have free oil changes” ….have you heard anything like that before? Where are the flaws in that statement? What about training? What about stocking? What about a happy service department who treats customers well? A value-added program is not a silver bullet.

When we were on our value-added program we invited customers to ask for more. We loudly advertised that we are solely here to give you free stuff. To the public, who hates car dealers, that meant “let’s see how much more free stuff we can pull out of those devils.” Our value-added program created an air of negotiation you couldn’t shake. It filled our service department with customer who had the mind-set that they didn’t have to spend money, so our service departments couldn’t up-sell anyone. And we had to heavily rely on F&I to make the front-end profit because our sales people were virtually just order takers (lazy). What happens when you whack the hell out of people in F&I?……charge backs and court cases.

When we got off the value added-program our front-end gross immediately went up. PVR’s were higher despite the fact that it left less room for F&I to go nuts. Within a few months the service departments were selling again. This also meant they weren’t so ready to gauge the used car department all the time. And the really crazy part: our sales volume stayed relative to the market.

You now know where I stand on value-added programs. What do you think?

About the Author

Alex was born into the car business. His family owns a group of stores in Virginia where he held a multitude of positions since he first cut the grass there in 1989. DealerRefresh caught his attention in 2006 and he has been a part of the community ever since. In 2010 Alex joined Dealer.com to help put a dealer's spin on products; where he got a front row seat to converse with over 13,000 dealers and watch 2 acquisitions totaling over $5 Billion. Today, Alex lives in Vermont and works to make DealerRefresh amazing!

Comments

A great point Alex, but not completely accurate. What is the one thing your dealership can offer the others can't? YOUR DEALERSHIP (and you, of course).

I agree, relying on free oil changes is not a value added proposition and is a crutch for those who need an excuse for poor performance.

At my first store, we sold the service department, parts, the cafe, wireless internet, loaners, shuttle, inventory, and the backing of a company for life of ownership.

Clearly, not within your realm, but it is value added sales nonetheless. I think a GOOD value based program concentrates on what the customer gets when they are buying from your store- not the "fluff" as it were, when it comes to the freebies.

As a marketing person, I love these items that I can talk about, share, promote. But, they may just be drawing in those people who are looking to feel as if they got a deal. And those people are always looking for the next deal…basically they won't buy anything that is not "on sale". (This is why Kohl's business is booming).

I prefer to promote events, community involvement, and giveaways that speak to the dealership's personality as a whole. These events are important tools to make people feel more comfortable with us. No one walks into a dealership for the very first time and feels trusting and comfortable. This is a huge purchase, so the more they can KNOW us, the more they can relax a little bit when it is time to come in and buy a car.

And if we manage to get a few people to feel at ease, then it was all worth it.

I hear you loud and clear. I see Value-Added programs across the board, from dealer to dealer. It’s always the “ABC Dealer For LIFE” and they slam the audience/consumer with the message until I’m (from the marketing side) sick of hearing it. Even more, I get sick of hearing how “my dealer” needs something like this. “We too need a value-add program”.

Focus on great customer service, hire the right people, establish process, leverage dealer rating sites to help drive the process, make it easy to buy a car from your dealer, be transparent in your operations and reward your employees on customer service. Now you have a TRUE value added program where ALL WIN! Oh wait – we need to hire the right people? Yes, and that might include dumping the old baggage that’s preventing your dealer / department from moving forward. For some, the light bulb never screws in.

“BUT it maintained the laziness status quo that most dealerships are so plagued by.”

Guilty, we are so guilty of this. It’s way easy to push and promote a “ADC Dealer For Life” program and in return it makes us lazy do doubt. Don’t get me wrong, from the sales person perspective..it’s another tool for the close, another weapon in my arsenal.

The age’ol saying – People Buy People. It’s funny to hear a GM or Principle say that during the same meeting they push for a Value-added program. 🙂

I’m guilt though – as much as I hate them, I eventually / do give in. From my seat; overseeing most of ALL marketing, it’s an easy message to promote and overplay. It’s what they want anyways right?

If you are going to have a Value-Added program – make it a sold service piece you can use to up-sell.

up-selling the value added program is definitely a huge bonus. the dealership i used to work at had an upsell maintenance program where you received what essentially amounted to the first three scheduled maintenances free along with a loaner car. the salesperson could upsell this for about $450 and it was wildly popular as it allowed the sales department to make a little more gross, the customers really loved the value of the program (they still have customers asking for it today) and it introduced the customer to the service dept. and after the free maintenances were up, it help form that initial contact with service that had the potential for upselling later on.

I would offer that there is almost nothing productive to learn about value added programs in the Automobile business. If one wants to see how to do things like this effectively, look at good retailers. The beauty of making statements like "bunk" in automotive is that practically nothing is effectively or properly measured by people who typically understand little about marketing, retention and effective analysis – yet love to offer their expert viewpoints…for some reason we think that automotive retail is a truely unique business that follows none of the principles of retail..now that's something that is really "Bunk."

Gary – you may be right about solely looking at the advertising practices in the automotive industry when it comes to value-added items. Do you have any suggestions or examples to look at outside of the industry? Things the industry could learn from?

You make a great point with the lack of analysis of whether marketing programs work in the auto industry. I have met car dealers who don't look at the few analytic tools that they do have in place.

And I do like that you are looking at regular retail for guidance when you say, "for some reason we think that automotive retail is a truely unique business that follows none of the principles of retail"

However, I would add that the auto industry is unique in that it can not follow ALL of the principles of [regular] retail. The two big differences are 1. It's a bigger purchase than 99% of normal retail so more thought goes into the purchase and 2.there is a general distrust by consumers towards car dealers and salespeople. So building that trust value is a great way to spend your time and energy.

Value-add for the purpose of value-add is probably a pretty bad idea. "Me-too-ism" related to this topic is usually a losing proposition. Frankly, as we always say at the Rich Dealers Institute — "same is lame."

However, there are two critical elements that need to be considered in this discussion in order to make a truly effective strategic decision.

1. Most people have a "something for nothing" self delusion. This is, in fact, the driving element behind all successful retail marketing, automotive or otherwise. This is what causes people to buy lottery tickets, play the slots in vegas, buy the value meal at the drive-through (tip of the hat to the fry pic). Same reason "The Four Hour Work Week" has been tearing up the bestseller charts for 3 years. Everyone believes, deep down, that they can somehow can something for damn near nothing. The insatiable desire to "score" that something drives people to make emotional buying decisions (it's the feeling you get when you tell yourself, "just one more pull on the one-armed bandit…this is my time to win!"). Incidentally, this is also the magic behind cash for clunkers.

People are expecting that something. As marketers, we really need to deliver on that. And if we can deliver it in a unique way, that they aren't hearing from our competitors, we have an opportunity to become the first choice. The obvious choice. That's the key.

The sports illustrated football phone comes to mind. The cracker jack toy. The free prize in a box of cereal. The wooden ship from Napoleon Dynamite ("I want that!"). Free oil changes for life. All variations on the same theme — all effective.

Truly, no small value-add is enough to shift the value proposition completely — but combined into a package, with the right message, it is enough to separate a dealership from everyone else and create an apples to oranges comparison — ultimately, making it harder to compare by price alone. This leads me to the second critical element to be considered:

2. If we can provide no way for a customer to differentiate between us and our competitors, price will be the final dictator of decision. Hate to break it to to, but being chosen because you have the best price isn't the greatest thing that can happen. The better thing that could happen is being chosen because the value proposition is better, even though your price is more — leaving you with more profit.

Ultimately, value-added tsatskes are only part of the equation. The ultimate value-add you can promote is the ability to solve the customer's problems. Most all of your potential buyers have a problem that's keeping them away (upside down, still making payments, credit issues, no money for down, over mileage on lease, etc, etc). If you can shift the conversation away from price, even away from free tires and oil changes, and move toward becoming a problem solver rather than a product pusher, you can actually begin accelerating a stalled-out market and creating your own pool of buyers.

We offered a Lifetime Warranty with every new vehicle purchase for about a year. It felt like it was selling us a ton of cars, but truly only sold us a few cars here and there. With a lot of encouragement from the Lifetime Warranty company, we changed our entire dealer group's branding, 20+ years of branding, from the the area's best and largest family owned and operated dealer group in Eastern OH and Western PA to the Lifetime Warranty dealer. It was a crutch that our sales department leaned on way too hard, if we were priced competitively we felt as though we "deserved" the deal because we offered a lifetime warranty on top of that.

We primarily got off of it for liability issues (that's another can of worms) 6 to 9 months ago. I remember our sales people thinking to themselves, "what are we going to do?" One of our sales people even posted on the forums looking for another value add program. Clearly we were brain washed.

Per Alex and others recommendations we went the route of selling value. Our sales people are selling themselves and building much better rapport with the customer. Additionally we are selling the dealership with virtual tours of our state of the art facility and using third party review sites like DealerRater.com where we have 48 reviews between all of our stores and a 4.9/5 rating. Additionally we use our website to promote the convenience of doing business with us like our "No Hassle" Internet Sales Process and our "No Haggle" Live Market Priced used cars.

This is a great article. I guess you could consider dealer incentive programs a waste of money. My company offers oil changes for life, state inspections for life, and your engine is guaranteed for life. The sales person needs to support the program and process. If you build value in the dealership and customer rewards program then customers will see the benefit, but if they don't then it's a waste of time and money. Our competitors have tried to squash or discredit the program through advertising. And no some of them have even tried copying it. The program is great for customer retention, after all most people go back to places where they get stuff for free. We are all still selling our brand, dealership and ourselves. Selling is an art, anyone can take an order and write up a car deal like a cashier. That's just my two cents.

I'll say about the same thing I said in the forum, these VAP's make me cringe thinking back to the market before the big tumble. I was at a very customer service oriented Toyota store and we were trying all that we could to not get into the VAP's and just focus on the fact that we were a 15time Presidents award winner with a great track record of customer service and satisfaction. Then all the local dealers were advertising all these freebies and it made the customers mooching assholes. It almost got me out of the business. But then the market went into the shitter, those freebie giveaway dealers started to not offer any of those freebies and their reputation crumbled…and then there we are, still having to work for the business, but at least we made it through and were still making money.

I'm at a luxury store now but almost everyone expects loaners and free car washes….other then that it's just normal business as always with the best customer service (sales and service) in the area…..and thank God, not to many VAP's…except maybe a free hat or shirt I throw into the deal :p

Dave-There is more than one thing different about the car business vs. retail in general. The biggest and the hardest for us to overcome is the "Car Dealers are Snakes" school of thought. While he was probably admonished for ruining small town main st. Sam Walton is generally not thought of as a shyster! Unfortunately car dealers are still thought of as the guy in the short-sleeved shirt with the tie on that only goes halfway down his belly and plaid pants if you like. "Free Oil Changes For the Hole Family for Infity*" (note the asterisk) just sounds like the same old game. I would rather sell how reputable our store is and let the sleaze-balls that can't say it with a straight face keep playing the same game while getting the same results.

The other key difference is the automotive industry is one of the few retail industries that still allows negotiation. When your key value point is "lower price" then what is the customer thinking when they sit down at the desk? The same thing they were thinking when they walked in the door. I want my customers coming through our door because we have established that we are going to take care of them.

VAPs were marketing promotions that evolved into policy. The real story is how they worked their way into "Holy Grail" status (even though they had no ROI any longer).

I love a good story!

Look at the environment VAPs were born in. We finally found a advertising message that was not about price -AND- the VAPs resonated with the audience… FINALLY… Nirvana!

Early adopters were rewarded and everyone piled on. Early adopter leverage was lost and so went the VAP opportunity.

VAPs went thru a life-cycle that many of us "old timers" here at DR (circa 2000ish) have seen many a time. Early Adopter waves come and go. Waves I've rode:

AutoTrader then to eBay, then to 25 pics, then came BZ, onto SEO, Blogging, to vAuto, and to vehicle comments, on to Social Media… what wave have I missed?

I think the real story is how the VAPs morphed into policy and onto "untouchable" status yet ROI was long gone. It took a once in a life time recession to knock it off the shelf and into the closet where VAPs will wait for a rebirth in the 2020's somewhere 😉

We also currently offer a Life Time Warranty on all of our new vehicles. It is at the center of our selling strategy. However, we have recently been looking at the value added components that we already offer that won’t have the cost of sales (or the recurring liability) that the warranties provide.
We have found that we only sell vehicles to two types of opportunities. 1. They saw a low price on a vehicle online, or 2. They are repeat buyers or have been referred to us. Both sets of transactions could have easily been produced without the cost of the “value added” component.
I feel I will soon sunset the life time warranty also.

Thanks for sharing Berger. I’m always back and forth with this. I think I made a reflecting comment up there somewhere.

Looking through the lens of a marketer, having a “value proposition” makes it easy to differentiate the dealership. Something to brand the dealership with.

But..is it needed? Depends on the dealership. I like to believe Value Added programs are Bunk and if a dealership has a solid process in the sales department from beginning to end, has a great reputation and allows the customer to flow through the purchase..maybe it’s not needed.

But also, consider the local competition. Do they have a value add and if so has it had an impanct on your sales and service?

My Nissan dealership had/and has a new Added Value Program. Nothing major like Lifetime Warranty but a value add none the less. Half of the customers that purchase aren’t even aware of it. Yes, that’s the fault of the sales department not using it to their possible (?) advantage, but this dealership has increased sales by almost 200% in a little over a year. Of course there are other variables to figure into the increase but the point still stands..most are not aware of the program and we continue to excel.

Side note: One of our closest competitors does have a Lifetime Warranty value add and they have done a great job at branding it as well.

With that being said, are we placing too much focus on the Value Add to initially sell cars to potential new prospects? What about service retention?

Great service retention has a direct impact on sales retention. IF you have a value added package, one needs to calculate the value from the front to the back. It’s imperative it becomes the “brand” of the dealership and promoted across ALL mediums.

In the end, if you choose the right value add with the right positive calculated long term ROI, promote it across all mediums including the showroom floor. It could yield you a nice advantage.

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Editors

Jeff Kershner

I’m the founder of DealerRefresh. I got my start in the dealer business when I was 18. From there I've worked throughout several departments within fixed to variable ops. Whether it’s managing the desk, perfecting sales process or studying online marketing and media trends, I absolutely love this business and the challenges it brings. On top of keeping up with DealerRefresh, I consult with dealerships and key industry businesses. My passion has been and continues to be helping dealers leverage new media to sell and improve customer service.

Alex Snyder

Alex was born into the car business. His family owns a group of stores in Virginia where he held a multitude of positions since he first cut the grass there in 1989. DealerRefresh caught his attention in 2006 and he has been a part of the community ever since. In 2010 Alex joined Dealer.com to help put a dealer's spin on products; where he got a front row seat to converse with over 13,000 dealers and watch 2 acquisitions totaling over $5 Billion. Today, Alex lives in Vermont and works to make DealerRefresh amazing!